How to Deal with News Indices

[PCMNewsdesk]

Dear Members and Users

Hereby,
We decided to inform you that here a matter would be started very soon that discuses about how to think of news indices and deal with them.
We hope this thread is informative and useful for all of you, as it is necessary to know while trading news and trading Forex.overally.

Best Wishes & Profit Trading
News Desk

[PCMNewsdesk]

We are going to discuss about the Economic News Indicators and how to deal with them. Our targeted market is the Forex/currency market, so we have to focus on the news indicators based on the impact it is having on our targeted market.
The news indicators or the economic events as they are called sometimes, are the reports which reveal the current data and condition of an economy’s different sections like industry, employment, consumers etc.

The following points should be noted of while rating the news indicators and events:

1. Each indicator from each economy has its own impact on the currency exchange rate.
2. When rating these indicators you have to consider that the stronger the impact of an event on the targeted market, the more important it becomes.
3. The economic news indicators and events’ importance and value change in different periods.

PS: In this thread the basis of valuation for economic news indicators and events is their overall impact during different periods.

Economic News Indicators and Events Rating

The news could be rated either alphabetically or numerically. In this thread I will list the news indicators alphabetically.
Tip: Each news from different classes (A, B, C) is divided into lower classes with positive sign (+) for high impact, no sign for medium and negative sign (-) for low impact.
The news having rating (A) effects the most on the currency exchange rate while news with A⁺ has more impact during its release. The most important news having rating (A) are the news reflecting the monetary policies.
The second level of news impacting the market is rating (B) which has less impact on the currency exchange rate. If this news is released completely beating expectations then it could create a move like rating (A) news on the currency exchange rate, otherwise there will be medium impact.
Tip: Rating (B) news has an impact on rating (A) news instead of having directly impact.
The last one is rating (C) news which doesn’t have any significant impact on the currency exchange rate.

[PCMNewsdesk]

There are two points to be considered:

1. When there is news which is important for an economy, it is not required that the same importance comes up in another economy.
2. U.S news have more importance because it is the biggest economy in the world and due to the value of its currency the news could have impact on the exchange rates of the other currencies.

News Indicators:
The most influential data are for the U.S in the currency market, hence let’s get started with this economy and review their influence based on the impact of each data on the macroeconomic indices.
At the end, the important economic indicators for the countries, their currencies between the major ones will be introduced.

[PCMNewsdesk]

U.S News Indices: Gross Domestic Production (GDP)
This data has a lot of long and short term impacts on the currency exchange rate and reveals boom and deflation periods. This news shows the overall economic condition of a country in terms of deflation and prosperity.
Tip: Decreasing the rate of GDP doesn’t mean bad economic condition, but having it in negative territory shows poor economic status and deflation.
Gross Domestic Production is usually released as an annualized percentage, based on quarterly changes of data. However, the news index is released three times: Preliminary, Final and Advanced.
The advanced version has more priority compared to other two indices, as this data has a precedence.
Tip: Most economic news are important, as they have impact on GDP.

Impact: A+
Release Time: A day of the fourth week of the new quarter at 08:30 (EST)
Period: Quarterly
Relevance: Directly with the Currency, Stocks and Commodity markets, inversely with the bond market

[PCMNewsdesk]

U.S News Indices: Institute for Supply Management
This index assesses the condition of the industry through a survey on 250 industrial companies’ CEOs in field of 21 industry of 50 U.S. states.
This is one of the important indices regarding the condition of the construction agencies and the industry that reflects its status and perspective from the managers’ point of view.
ISM index is constituted of a weighted average of five subcategory which has been noted below:
New Industry Orders, Production, Employment, Goods Delivery Time and inventories.
This is a leading index which reveals the view of the managers about the economic condition.
This is connected directly to the dollar and its improvement could lead the dollar appreciates and it is so sensitive during the gyration of every business and shows inflation, employment and growth condition.
Jobs and inflation data within this index could be reviewed as leading data towards releasing each of indices’ data.
The middle point for this index is 50 and the higher, the better economic condition from the CEOs views. The lower from 50, the more inadequate economic condition.
ISM index is released in two types to the market:

1. ISM Manufacturing

Which it has been discussed earlier and it reveals how well manufacturing factories are.

1. ISM Non- Manufacturing ( Service )

Which has lower importance than the first one. It is a kind of report that surveys 370 companies on services (Financial, Insurance, Real Estate, Communications, Public Services and facilities).

Impact: First one (B+) and the second one (B-)
Release Time: The first working day of the month at 10:00 (EST)
Period: Monthly

[PCMNewsdesk]

U.S New Indices: Philadelphia Fed Survey

This index reveals the economic condition through a survey by Philadelphia Fed on businesses managers in regions like Pennsylvania, New Jersey and Delavera.
Why this is important to the market:
Philadelphia is the third industrial state of the U.S
It is released earlier than ISM indices.
In fact, it gives an outlook on production and business in manufacturing sector.
The border is zero (0) – known as psycho level too. Percentage of positive changes show improving condition and percentage of negative changes show deflationary condition.

Impact: B
Release Time: The third Thursday of the new month at 12:00 (EST)
Period: Monthly
Relevance: Directly with the Currency, Stocks and Commodity markets, inversely with the bond market

[PCMNewsdesk]

U.S News Indices: Durable Goods Orders

This index shows how much durable goods orders have been registered.
Durable goods are the goods that have a life more than 3 years like Computers, Electrical devices, Electrical equipment (system), Airplanes and so on.
This index reveals optimism/pessimism sentiments of big investments and the whole orders. This is a very good gauge to measure the big investors’ sentiment regarding to the long term economic condition to order durable goods. This index shows a clear view of investors to order and the people to buy important and essential goods as people either remove or prolong a lot of expensive and durable goods form their shopping lists during deflation periods.

If demand decreases: there will be two modes:

1. A part of manpower will be amended to decrease the costs.
2. The same goods would be produced and stocked by the same number of workforce and this will cause an increase to the inventory.

In periods of prosperity, as this index has big movements during different seasons and based on the people’s view, it counts for an unstable and volatile index.
There are two major problems:

1. Index numbers has a high volatility, specially orders for defensive goods
2. Generally, it is largely revised (for the previous release)

The released number shows the percentage of changes form the last month. For the subsidiary of this index, durable goods orders is released excluding transportation stuffs. This index has lower volatility band compared to the core durable goods orders index as goods regarding to transportation like building a plane has mass orders with high costs.

Tip: To have it reviewed more accurate, usually economists consider 3 month average instead of monthly index

Impact: B-
Release Time: Three to four weeks after the new month begins at 08:30 (EST)
Period: Monthly
Relevance: Directly with the Currency, Stocks and Commodity markets, inversely with the bond market

[PCMNewsdesk]

U.S News Indices: Consumer Confidence

The consumer confidence is an assessment/evaluation index of economic condition on business, job and personal income which is based on a survey of the prospect of 5000 persons (institutions) form whole consumers.

Tip: This is getting more attention during political/financial crisis.

Consumer confidence has a close and direct relation with the consumer’s costs, and the more this index helps the economic condition improves, the more would be consumed.
In the other words, this index is the result of a survey that the consumers has been requested to assess the future economic outlook. Higher numbers show more optimism from consumers. The more they are optimist, the more they intend to go shopping and using services, and thus the economic condition will be better.
This is index is consisted of two following part:

1. Assessment of the current consumer condition (40%)
2. Assessment of the future of the household and their expenditure (60%)

Impact: B-
Release Time: The last Tuesday of the month at 10:00 (EST)
Period: Monthly
Relevance: Directly with the Currency, Stocks and Commodity markets, inversely with the bond market

[PCMNewsdesk]

U.S News Indicators: Chicago PMI Index

This indicator measures the business climate as a monthly basis survey on the managers in Illinois, Indiana and Michigan.
The importance is lower than ISM PMI (this is counted as a local type index)
The border figure is 50, higher than 50 shows business is performing well which leads to a stronger dollar and below 50 shows a weakening economy which ends to a falling dollar.

We have to consider the results accurately while trading because of the following reason:
As managers do their job and they are aware of the macro-status of the factories, they do provide important performance data about the overall economy. Therefore, it could be counted as a leading indicator on economic performance.

Impact: B-
Release Time: The last day of the month at 10:00 (EST)
Period: Monthly
Relevance: Directly related with the Currency, Stocks and Commodity markets, inversely related with the bond market

[PCMNewsdesk]

U.S News Indicators: CPI: Consumer Price Index

This index measures the inflation in the consumer and household section and it is a base indicator to calculate the inflation nationwide.
The CPI simply shows the buying power of the dollar against goods and services. It shows the rate of price changes of a basket of goods and services in which the most costs of a household expenditures are accounted for.
As the inflation accounts for a negative data for an economy and lower the buying power of the consumers, the central bank pay close attention to the inflationary condition.
In case of increasing the inflation, the simple and the most powerful strategy to curb it is raising the interest rates. Nevertheless, the central bank monitors the inflationary status in different sections very closely.

In the U.S. the consumer price index is consisted of 200 goods and services which fall into 8 categories.

These 8 categories have diversified weighs to get the inflation calculated as follows:

Housing, transportation, food, health care, education and communication, entertainment, apparel, service and so on.
Beside CPI index, there is also Core CPI released which in fact is same to CPI, but exclude energy and food data as they are very volatile. Therefore, the Core index has more accurate data to be used as an analytical tool while trading exchange rate.

Impact: B+
Release Time: Up to the fifteenth day of the month at 08:30 (EST)
Period: Monthly
Relevance: Directly related with the Currency, Stocks and Commodity markets, inversely related with the bond market